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Got Accountability? New ANA Report Highlights the Importance of Production Transparency in Agency Relationships

August 31, 2017SC&H Group

The following SC&H Group blog post discusses the findings of a recent Association of National Advertisers (ANA) report, “Production Transparency in the U.S. Advertising Industry,” including the prevalence and risks of non-transparent agency practices, as well as the benefits of ensuring more accountable, trusting advertiser-agency relationships.

Is your agency relationship open and transparent? Don’t be so sure.

Agency holding companies have become very complex as they buy, divest or rebrand/reorganize the individual brand or craft agencies that are captured under the umbrella. The amount of separation and independence, or lack thereof, of the agencies under the umbrella is not always clear. While agencies under the same umbrella may collaborate to execute client work, best practice calls for additional scrutiny of transactions that are not “arm’s length” transactions to confirm the fair market value..

According to a recent report from the ANA Production Transparency Task Force, many agencies and holding companies are engaging in non-transparent practices related to the production of commercials, events, music, print, and other materials. Even worse, these behaviors are having a substantial and often undetected impact on advertiser ROI.

Fortunately, as a marketing executive, procurement professional, or internal auditor, you can help to minimize the effect of these practices on your organization. By enabling a more accountable, trusted relationship with your agency, you can ensure greater dependability, savings, and results.

ANA Report Findings: An Array of Nontransparent Agency Practices
Released in August 2017, the ANA report highlights various behaviors related to the management, delivery, and purchasing of production services, which include areas such as editing, directing, color correcting, and special effects.

Among the report’s most notable findings is the frequency with which agencies:

Utilize in-house production resources without the knowledge of the advertiser

Use their control of production bid processes to steer contracts to their in-house resources or an affiliated company

Fail to disclose their ownership of a contracted production company

Ask independent production companies to submit bogus, higher-than-normal bids, allowing the agency to route the work back to their in-house production resources

File directly with states to receive financial incentives for filming commercials within a locality (in some cases, the advertiser may be the rightful beneficiary of these incentives)

While the report acknowledges that this behavior is not necessarily engaged in by every agency, it does note that overall, production services have become “profit centers for agencies and holding companies.” In fact, the issue has become so widespread that the U.S. Department of Justice is now investigating production practices and potential bid-rigging at several of the industry’s largest agency holding companies.

In addition, the ANA report comes only one year after the release of another landmark ANA report, which addressed media transparency and the improper practice of media owner rebates and kickbacks to media agencies.

As a by-product of the media transparency report, the ANA identified transparency concerns in the production area, which led to the formation of the ANA Production Transparency Task Force.

Steps Forward: The Importance of Ensuring Agency Transparency and Accountability
Here at SC&H Group, our Contract Compliance Audit Services team has observed similar agency behaviors—with both production and media services—and the negative financial and decision-making effects they have on advertisers.

There is clearly a problem. But, there are also solutions: transparency and accountability.

Consider the practice of cross-selling in-house production services. There is nothing inherently sinister about it, and when done openly, cross-selling can benefit both the advertiser and the agency. However, when there is a lack of transparency and independence, it can result in sub-optimal business decisions that increase cost and reduce the quality of service.

As the digital transformation increases the prevalence of new and exciting media platforms, the needs for high-quality content production is greater than ever. It is important to take steps now to improve transparency and accountability around production spend.

For instance, many advertisers are scheduling regular conversations between their marketing team, procurement team, and agency, as well as establishing protocols to avoid potential conflicts of interest. Some advertisers are even bringing limited production services in house.

Key ANA Recommendation: Be More Diligent with Agency Contracts
In addition, the ANA report recommends that advertisers become more diligent with their agency contracts, namely by incorporating contract compliance audits into their standard protocols.

With the intricate nature of agency contracts, compensation methodologies, and pass-through practices, agency audits can be an invaluable tool for ensuring compliance with contract terms. They can also uncover significant financial savings by resolving inadvertent non-compliance that leads to over payments. In addition, audits uncover areas of the contract that are honestly misunderstood or misinterpreted by well-meaning agency partners. These opportunities allow contract improvements to be collaboratively implemented and enhanced controls put in place to optimize compliance and earnings.

Ultimately, the success of any advertiser-agency relationship is based on earned trust and accountability. With the right steps and candid conversations, your organization can reap the short- and long-term financial benefits of a healthy, transparent agency partnership.

For more information on why contract compliance should be part of your corporate DNA, read our latest white paper, “Do You Have a Contract Compliance Strategy?” here.

To learn more about how to develop greater transparency, accountability, and trust with agencies and other key vendors, click here to speak directly with a team member from SC&H Group’s Contract Compliance Audit Services practice.